Mortgage Finance ETF in Focus

February 4th at 1:02pm by Paul Weisbruch, Street One Financial

Financial Select Sector SPDR (NYSEArca: XLF) calls were rather active on Friday with one particular trade that stood out involving upside call buyers of April 18 strikes. Several months back the $15 and $16 strikes were in play, and with XLF trading at the $17.48 level currently, one can quickly look at a chart and see the run that the sector has had in the past several months.

XLF has an expense ratio of 0.18% and tracks the financial sector, which has clearly been one of the leaders in the trailing one year period and is currently trading at multi-year highs. [Financial ETF Eyes Post-Crisis High]

An understated segment of the broader “Financials” space may be that of Mortgage Finance, and there is a little known ETF, SPDR S&P Mortgage Finance (NYSEArca: KME) — expense ratio 0.35% — that focuses on mortgage banking, processing, and marketing, and undoubtedly the fund is set to benefit if the housing market continues to improve as more loans are originated and processed.

For, top names in XLF including WFC, JPM and BAC for example, have sizable mortgage lending operations that have emerged as significant drivers to top line revenues within these banking companies as the housing market improves.

KME debuted back in April of 2009 and only averages about 900 shares on an average daily basis even as the fund trades near its all-time highs.

From a portfolio composition standpoint, top holdings are names like SPF (3.11%), RYL (3.01%), MDC (2.98%), PHM (2.94%), DHI (2.93%), TOL (2.91%), LEN (2.88%), FNF (2.87%), XL (2.86%), and FAF (2.85%).

One can see that there are homebuilder and construction names in the portfolio as well as title insurers and companies involved in the mortgage aftermarket and processing lines of business. [Homebuilder ETFs]

If the financial sector continues to out-perform, we would imagine that specialized, niche funds that focus on offshoots of broader “Finance” will begin to see some traction as investors become aware of the presence of these ETFs themselves.

SPDR S&P Mortgage Finance

mortgage-etf

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

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